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🏗️ VAT and Regulatory Practice in Construction

Issues regarding VAT application, judicial practice, and tax regulation in the construction industry were discussed on April 24, 2026, during a meeting of the CBU Tax Policy Committee. The session was chaired by Dmytro Mykhailenko, Chairman of the Supervisory Board of Crowe Mikhailenko and a member of the Board of Directors of the CBU.

📍 In particular, the focus was on the justification of VAT application in budget-funded projects. According to Mr. Mykhailenko, the primary challenge lies in the discrepancies between tax legislation and the observations made by the State Audit Service of Ukraine (SASU) during audits of construction procurement.

💬 "Today, judicial practice is becoming increasingly complex, especially regarding beneficial ownership and forward contracts. For a developer, it is crucial not only to conclude a contract but to build an evidentiary base that leaves no room for the tax authorities to arbitrarily interpret the economic substance of a transaction", noted Dmytro Mykhailenko.

During the meeting, participants reviewed legislative initiatives on VAT, specifically for single tax payers, as well as the implementation of European directives on anti-tax avoidance. New rules regarding business purpose (economic substance), tax abuse, and thin capitalization were examined, alongside the expansion and changes in applying rules on the place of effective management for non-residents. Participants also analyzed the Supreme Court's legal position on security payments in construction. It was emphasized that the misclassification of such payments in contracts leads to significant tax assessments.

🧑‍⚖️ Practical aspects of input VAT apportionment for developers were discussed, particularly in cases where taxable and tax-exempt operations are carried out simultaneously.

Special attention was paid to payments to non-residents, specifically the Supreme Court's practice regarding reduced tax rates (royalties, dividends) under international treaties. The main issue is proving the "beneficial owner" status of the income recipient to avoid the denial of tax benefits.

📋 Approaches to determining the arm's length price (ordinary price) in forward contracts were also considered, specifically in the context of protecting the value fixed at the time of the contract from future claims by tax authorities.

📌 Following the meeting, participants agreed to further develop a unified business position and prepare proposals to improve the practice of tax law application in the construction industry.

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